The Securities and Futures Commission (SFC) has reprimanded and fined Zheshang International Financial Holdings Co., Limited (Zheshang) $2.66 million for failures in complying with anti-money laundering and counter-financing of terrorism (AML/CFT) and other regulatory requirements between June 2016 and October 2018 (Relevant Period) (Note 1).
The SFC’s investigation found that Zheshang failed to put in place an effective ongoing monitoring system to detect and assess suspicious trading patterns in client accounts, which resulted in its failure to detect the majority of the 23,370 self-matched trades that occurred in three client accounts during the Relevant Period (Note 2).
In addition, the SFC identified that the amounts of deposits made into two client accounts were incommensurate with their declared financial profiles. Although Zheshang claimed to have made enquiries with the clients, it did not keep record of such enquiries.
The SFC is of the view that Zheshang’s systems and controls were inadequate and ineffective, and Zheshang failed to ensure compliance with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, the AML Guideline and the Code of Conduct (Notes 3 and 4).
In deciding the disciplinary sanctions against Zheshang, the SFC has taken into account that:
- Zheshang’s failures to diligently monitor its clients’ activities and put in place adequate and effective AML/CFT systems and controls are serious as they could undermine public confidence in, and damage the integrity of, the market;
- a strong deterrent message needs to be sent to the market that such failures are not acceptable;
- Zheshang’s cooperation in resolving the SFC’s concerns, including its agreement to engage an independent reviewer to review its internal controls; and
- Zheshang has an otherwise clean disciplinary record.
Notes:
- Zheshang is licensed under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 5 (advising on futures contracts) and Type 9 (asset management) regulated activities.
- Self-matched trades refer to trades of the same product executed by the same client at the same price in the same second but in opposite buy and sell directions. The Guideline on Anti-Money Laundering and Counter-Terrorist Financing (AML Guideline) specifies the entry of matching buys and sells in particular securities and futures as an example of situations that might give rise to suspicion of money laundering, as it might create the illusion of trading and be an indication of market manipulation.
- Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
- Please refer to the Statement of Disciplinary Action for the relevant regulatory requirements.
A copy of the Statement of Disciplinary Action is available on the SFC website
